ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The interim unaudited condensed financial statements and this Management's
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with the financial statements and notes thereto for the
year ended December 31, 2011 and the related Management's Discussion and
Analysis of Financial Condition and Results of Operations, both of which are
contained in our final prospectus filed with the Securities and Exchange
Commission on October 5, 2012 relating to our Registration Statement on Form
S-1/A (File No. 333-183384) for our initial public offering.

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FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q may contain "forward-looking statements"
within the meaning of the federal securities laws made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set
forth below under Part II, Item 1A, "Risk Factors" in this quarterly report on
Form 10-Q. Except as required by law, we assume no obligation to update these
forward-looking statements, whether as a result of new information, future
events or otherwise. These statements, which represent our expectations or
beliefs concerning various future events, may contain words such as "may,"
"will," "expect," "anticipate," "intend," "plan," "believe," "estimate" or other
words indicating future results. Such statements may include, but are not
limited to, statements concerning the following:

• the initiation, cost, timing, progress and results of our research and
development activities, preclinical studies and future clinical
trials;

• our ability to obtain and maintain regulatory approval of our future
product candidates, and any related restrictions, limitations, and/or
warnings in the label of an approved product candidate;

We are a biopharmaceutical company focused on discovering and developing
first-in-class drugs that target microRNAs to treat a broad range of diseases.
We were formed in 2007 when Alnylam Pharmaceuticals, Inc., or Alnylam, and Isis
Pharmaceuticals, Inc., or Isis, contributed significant intellectual property,
know-how and financial and human capital to pursue the development of drugs
targeting microRNAs pursuant to a license and collaboration agreement. microRNAs
are recently discovered, naturally occurring ribonucleic acid, or RNA, molecules
that play a critical role in regulating key biological pathways. Scientific
research has shown the improper balance, or dysregulation, of microRNAs is
directly linked to many diseases. We believe we have assembled the leading
position in the microRNA field, including expertise in microRNA biology and
oligonucleotide chemistry, a broad intellectual property estate, key opinion
leaders and disciplined drug discovery and development processes. We refer to
these assets as our microRNA product platform. We are using our microRNA product
platform to develop chemically modified, single-stranded oligonucleotides that
we call anti-miRs. We use these anti-miRs to modulate microRNAs and by doing so
return diseased cells to their healthy state. We believe microRNAs may be
transformative in the field of drug discovery and that anti-miRs may become a
new and major class of drugs with broad therapeutic application much like small
molecules, biologics and monoclonal antibodies. We are currently optimizing
anti-miRs in five distinct programs, both independently and with our strategic
alliance partners, AstraZeneca AB, or AstraZeneca, GlaxoSmithKline plc, or GSK,
and Sanofi.

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Under these strategic alliances, we are eligible to receive up to approximately
$1.7 billion in milestone payments upon successful commercialization of microRNA
therapeutics for the eleven programs contemplated by our agreements. These
payments include up to $106.5 million upon achievement of preclinical and
investigational new drug application, or IND, milestones, up to $350.0 million
upon achievement of clinical development milestones, up to $420.0 million upon
achievement of regulatory milestones and up to $850.0 million upon achievement
of commercialization milestones. We anticipate that we will nominate at least
two clinical development candidates within the next 12 months and file at least
two INDs with the U.S. Food and Drug Administration, or FDA, by 2014.

Recent developments

• On October 10, 2012, we completed our IPO whereby we sold 11,250,000
shares of common stock at $4.00 per share and received net proceeds of
$40.7 million (after underwriting discounts and commissions and
estimated offering costs not yet paid as of September 30, 2012);

• On October 10, 2012, concurrent with the completion of our IPO, we
sold 6,250,000 shares of common stock in a private placement to
AstraZeneca at the initial public offering price of $4.00 per share
and received net proceeds of $25.0 million;

• On October 10, 2012, the automatic conversion of $5.0 million of
outstanding principal plus accrued interest of $788,000 underlying a
convertible note that we issued to GSK in April 2008 and amended and
restated in July 2012 and the conversion of $5.0 million in
outstanding principal plus accrued interest of $25,000 underlying a
convertible note that we issued to Biogen Idec in August 2012, which
together converted upon the completion of our IPO into an aggregate of
2,703,269 shares of our common stock. An aggregate of approximately
$9,000 of interest was accrued from October 1, 2012 to October 10,
2012 which was included in the calculation of the shares issued but
excluded from the pro forma adjustment to the accompanying balance
sheet since such amounts were not yet accrued as of September 30,
2012;

• On October 10, 2012, the 27,399,999 outstanding shares of convertible
preferred stock automatically converted into an aggregate of
13,699,999 shares of common stock upon the closing of our IPO;

• On October 10, 2012, we filed an amended and restated certificate of
incorporation to authorize 200,000,000 shares of common stock and
10,000,000 shares of undesignated preferred stock; and

• On October 23, 2012, our underwriters' partially exercised their
option to purchase 1,480,982 additional shares of our common stock at
$4.00 per share and we received net proceeds of $5.5 million (after
underwriting discounts).

FINANCIAL OPERATIONS OVERVIEW

Revenues

Our revenues generally consist of upfront payments for licenses or options to
obtain licenses in the future, research and development funding and milestone
payments under strategic alliance agreements, as well as funding received under
government grants.

In the future, we may generate revenue from a combination of license fees and
other upfront payments, research and development payments, milestone payments,
product sales and royalties in connection with strategic alliances. We expect
that any revenue we generate will fluctuate from quarter-to-quarter as a result
of the timing of our achievement of preclinical, clinical, regulatory and
commercialization milestones, if at all, the timing and amount of payments
relating to such milestones and the extent to which any of our products are
approved and successfully commercialized by us or our strategic alliance
partners. If our strategic alliance partners do not elect or otherwise agree to
fund our development costs pursuant to our strategic alliance agreements, or we
or our strategic alliance partners fail to develop product candidates in a
timely manner or obtain regulatory approval for them, our ability to generate
future revenues, and our results of operations and financial position would be
adversely affected.

Research and development expenses

Research and development expenses consist of costs associated with our research
activities, including our drug discovery efforts, the preclinical development of
our therapeutic programs, and our microRNA biomarker program. Our research and
development expenses include:

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• external research and development expenses incurred under arrangements
with third parties, such as contract research organizations, or CROs,
consultants and our scientific advisory board;

• license and sublicense fees; and

• facilities, depreciation and other allocated expenses, which include
direct and allocated expenses for rent and maintenance of facilities,
depreciation of leasehold improvements and equipment, and laboratory
and other supplies.

We expense research and development costs as incurred. We account for
nonrefundable advance payments for goods and services that will be used in
future research and development activities as expenses when the service has been
performed or when the goods have been received.

To date, we have conducted research on many different microRNAs with the goal of
understanding how they function and identifying those that might be targets for
therapeutic modulation. At any given time we are working on multiple targets,
primarily within our five therapeutic areas of focus. Our organization is
structured to allow the rapid deployment and shifting of resources to focus on
the best targets based on our ongoing research. As a result, in the early phase
of our development, our research and development costs are not tied to any
specific target. However, we are currently spending the vast majority of our
research and development resources on our lead development programs.

Since our conversion to a corporation in January 2009, we have grown from 15
researchers to 34 and have spent a total of $61.2 million in research and
development expenses through September 30, 2012.

We expect our research and development expenses to increase for the foreseeable
future as we advance our research programs toward the clinic and initiate
clinical trials. The process of conducting preclinical studies and clinical
trials necessary to obtain regulatory approval is costly and time consuming. We
or our strategic alliance partners may never succeed in achieving marketing
approval for any of our product candidates. The probability of success for each
product candidate may be affected by numerous factors, including preclinical
data, clinical data, competition, manufacturing capability and commercial
viability. Under our strategic alliance with GSK, we may be responsible for the
development of product candidates through clinical proof-of-concept, depending
on the time at which GSK may choose to exercise its option to obtain an
exclusive license to develop, manufacture and commercialize product candidates
on a program-by-program basis. Under our strategic alliance with Sanofi, we are
responsible for the development of product candidates up to initiation of Phase
1 clinical trials, after which time Sanofi would be responsible for the costs of
clinical development and commercialization and all related costs. Under our
strategic alliance agreement with AstraZeneca, we are responsible for certain
research and development activities with respect to each alliance target under a
mutually agreed upon research and development plan until the earlier to occur of
IND approval in a major market or the end of the research term under the
agreement. We also have several independent programs for which we are
responsible for all of the research and development costs, unless and until we
partner any of these programs in the future.

Most of our product development programs are at an early stage, and successful
development of future product candidates from these programs is highly uncertain
and may not result in approved products. Completion dates and completion costs
can vary significantly for each future product candidate and are difficult to
predict. We anticipate that we will make determinations as to which programs to
pursue and how much funding to direct to each program on an ongoing basis in
response to our ability to maintain or enter into new strategic alliances with
respect to each program or potential product candidate, the scientific and
clinical success of each future product candidate, as well as ongoing
assessments as to each future product candidate's commercial potential. We will
need to raise additional capital and may seek additional strategic alliances in
the future in order to advance our various programs.

General and administrative expenses

General and administrative expenses consist primarily of salaries and related
benefits, including stock-based compensation, related to our executive, finance,
legal, business development and support functions. Other general and
administrative expenses include allocated facility-related costs not otherwise
included in research and development expenses, travel expenses and professional
fees for auditing, tax and legal services. We expect that general and
administrative expenses will increase in the future as we expand our operating
activities and incur additional costs associated with being a publicly-traded
company. These increases will likely include legal fees, accounting fees,
directors' and officers' liability insurance premiums and fees associated with
investor relations.

Other income (expense), net

Other income (expense) includes interest income and expense, and on occasion
income or expense of a non-recurring nature. We earn interest income from
interest-bearing accounts and money market funds for cash and cash equivalents
and marketable securities, such as interest-bearing bonds, for our short-term
investments. Interest expense represents the amounts payable to GSK and Biogen
Idec under convertible notes and amounts paid under equipment and tenant
improvement financing arrangements. In addition, we recognized a loss on the
extinguishment of debt as a result of amending and restating our convertible
note payable issued to GSK in February 2010. As a result of electing to value
the note under the fair value option, we will recognize all changes to the fair
value of the note as gain (loss) from valuation of convertible note payable.

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CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

The preparation of our unaudited condensed financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and the revenues
and expenses incurred during the reported periods. We base our estimates on
historical experience and on various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions. We discussed accounting policies and
assumptions that involve a higher degree of judgment and complexity within Note
1 to our financial statements in our Registration Statement on Form S-1/A (File
No. 333-183384). Except as set forth in the paragraph below, there have been no
material changes to our critical accounting policies and estimates from those
disclosed in our Registration Statement on Form S-1/A (File No. 333-183384).

Fair Value Option

Applicable accounting policies permit entities to choose, at specified election
dates, to measure specified items at fair value if the decision about the
election is: 1) applied instrument by instrument, 2) irrevocable, and 3) applied
to an entire instrument. In addition, an entity may choose to elect the fair
value option only at the date of an event (i.e., significant modifications of
debt, as defined) that requires an eligible item to be measured at fair value at
the time of the event but does not require fair value measurement at each
reporting date after that. In July 2012, we accounted for the amended and
restated note issued to GSK in February 2010 as a debt extinguishment of the
original note. We elected to measure the amended note under the fair value
option. The difference between the carrying value of the original note and the
fair value of the amended note was recorded as a loss on extinguishment of debt
to non-operating earnings. Thereafter, any change to the fair value of the
amended note will be recorded as gain (loss) from valuation of convertible notes
payable to non-operating earnings.

RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2012 and 2011
The following table summarizes the results of our operations for the three
months ended September 30, 2012 and 2011, together with the changes in those
items in dollars (in thousands):
Three months ended September 30,
2012 2011 Increase/(Decrease)
(unaudited)
Revenue under strategic alliances $ 2,809 $ 3,809 $ (1,000 )
Research and development expenses 5,248 3,875 1,373
General and administrative
expenses 1,093 907 186
Loss on extinguishment of debt (1,738 ) - 1,738
Loss from valuation of
convertible note payable (331 ) - 331

Revenue. We recognized revenue of $2.8 million in the three months ended
September 30, 2012 and $3.8 million in the same period in 2011. Our revenue
during these periods consisted primarily of amortization of upfront payments
received from Sanofi and GSK which we amortize monthly on a straight-line basis
over our period of performance. The total amortization attributable to payments
from Sanofi was $2.5 million for each of the three months ended September 30,
2012 and 2011, and the total amortization attributable to payments from GSK was
$186,000 for the three months ended September 30, 2012 and $1.3 million for the
three months ended September 30, 2011. The decrease in the amount amortized for
GSK for the three months ended September 30, 2012 compared to 2011 is the result
of our June 2012 amendment to the collaboration agreement which extended our
estimated period of performance and the resulting amortization period.

Research and development expenses. Research and development expenses were $5.2
million in the three months ended September 30, 2012 and $3.9 million for the
same period in 2011. The increase of $1.4 million is related to a $124,000
increase in payroll expenses, a $508,000 increase in laboratory supplies, and a
$660,000 increase in external services which was driven by additional hiring and
efforts to advance our preclinical programs.

General and administrative expenses. General and administrative expenses were
$1.1 million in the three months ended September 30, 2012 and $907,000 for the
same period in 2011. The increase of $186,000 primarily represents legal
services related to our transactions with AstraZeneca and Biogen Idec completed
in August 2012.

Loss on extinguishment of debt. We recognized a $1.7 million loss on
extinguishment of debt as a result of amending our $5.0 million 2010 GSK
convertible promissory note in July 2012.

Loss from valuation of convertible note payable. We recognized a $331,000 loss
as a result of the change in the fair value on the $5.0 million 2010 GSK
convertible promissory note in July 2012.

Comparison of the nine months ended September 30, 2012 and 2011

The following table summarizes the results of our operations for the nine months
ended September, 2012 and 2011, together with the changes in those items in
dollars (in thousands):

Revenue. We recognized revenue of $9.5 million for the nine months ended
September 30, 2012 and $10.4 million for the nine months ended September 30,
2011. Our revenue during these periods consisted primarily of amortization of
upfront payments received from Sanofi and GSK which we amortize monthly on a
straight-line basis over our period of performance. The total amortization
attributable to payments from Sanofi was $7.5 million for each of the nine
months ended September 30, 2012 and 2011, and the total amortization
attributable to payments from GSK was $1.8 million for the nine months ended
September 30, 2012 and $2.9 million for the nine months ended September 30,
2011. The decrease in the amount amortized for GSK is the result of our June
2012 amendment to the collaboration agreement which extended our estimated
period of performance and the resulting amortization period.

Research and development expenses. Research and development expenses were $14.7
million for the nine months ended September 30, 2012 and $12.8 million for the
nine months ended September 30, 2011. The increase of $1.9 million is related to
a $311,000 increase in payroll expenses, a $842,000 increase in external
services, and a $854,000 increase in laboratory supplies which was driven by
additional hiring and efforts to advance our preclinical programs.

General and administrative expenses. General and administrative expenses were
$3.0 million for the nine months ended September 30, 2012 and $2.9 million for
the nine months ended September 30, 2011. The increase of $134,000 is primarily
related to a $97,000 increase in accruals for our annual performance bonuses,
and a $357,000 increase in consulting services and legal fees, the latter of
which related to our transactions with AstraZeneca and Biogen Idec, offset by a
$332,000 reduction in support services received from Isis.

Loss on extinguishment of debt. We recognized a $1.7 million loss on
extinguishment of debt as a result of amending our $5.0 million 2010 GSK
convertible promissory note in July 2012.

Loss from valuation of convertible note payable. We recognized a $331,000 loss
as a result of the change in the fair value on the $5.0 million 2010 GSK
convertible promissory note in July 2012

LIQUIDITY AND CAPITAL RESOURCES

From our inception in September 2007 through September 30, 2012, we have raised
$116.6 million to fund our operations primarily through upfront payments,
research funding and preclinical milestones from our strategic alliances, from
government grants and from the sale of equity and convertible debt securities.
As of September 30, 2012, we had received $61.6 million in upfront payments,
research funding and preclinical milestones from our strategic alliances with
GSK and Sanofi and government grants, and $55.0 million from the sale of equity
and convertible debt securities.

As of September 30, 2012, we had $30.9 million in cash, cash equivalents and
short-term investments. The following table shows a summary of our cash flows
for the nine months ended September 30, 2012 and 2011:

Operating activities. Net cash used in operating activities were $9.6 million
for each of the nine months ended September 30, 2012 and 2011. The primary
drivers of the use of cash in operating activities for 2012 was the $3.0 million
receivable outstanding from AstraZeneca at September 30, 2012, and amortization
of deferred revenue relating to payments received under our strategic alliances
of $9.4 million, offset by the addition of $8.8 million in deferred revenue
related to R&D funding from Sanofi and our agreements with AstraZeneca and
Biogen Idec entered into in August 2012. The primary driver of the use of cash
in operating activities for 2011 was amortization of deferred revenue relating
to payments received under our strategic alliances of $4.9 million. In addition,
during the first quarter of 2011 we paid down our year-end accruals related to
CROs and year-end management bonuses earned in 2010. The decrease in cash used
from operating activities of $1.4 million between the nine months ended
September 30, 2012 and 2011 was the result of lower payments made on our
accounts payables and accrued payroll, which includes prior year bonuses, during
the first quarter of 2012.

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Investing activities. Net cash provided by or used in investing activities for
periods presented primarily relate to the purchase, sale and maturity of
. . .